On September 13th, 1970, The New York Times published: “The Social Responsibility of Business Is to Increase Its Profits”, written by Milton Friedman. Friedman asserted that a company has no social responsibility to society because its sole concern is to increase profits for itself and its shareholders. The Friedman Doctrine has been debated for decades. Nonetheless, corporate America has by and large operated as a profit-maximizing behemoth.
Enter the B Corps. You may or may not be aware of this term, as the concept is relatively new. First and foremost, it should be noted: “B Corp” is often used to describe both “Benefit Corporations” and “Certified B Corporations”, although the two are not identical.
“Certified B Corp”: a company aspiring for this credential must undergo a rigorous audit-like process. Companies must take and pass the B Impact Assessment, amend their governing documents if necessary, and sign the B Corp Declaration of Interdependence. Certified B Corps pledge to create benefits for all stakeholders, and receive such certification from a third-party, non-profit organization, the “B Lab”.
“Benefit Corporation”: a legal corporate structure, recognized by approximately 30 states, which allows companies to embed sustainable principles into their DNA. These constituency statutes vary among states. The basic provision of all benefit corporations is that each must seek to create a general public benefit and consider not only shareholders, but community, society, and the environment.
Benefit Corps have a long way to go before gaining mass appeal. At first glance, the concept is questionable. Are benefit corporations compromising profit to achieve some sort of social mission? Moreover, why must a company call itself a benefit corp to pursue social mission?
That being said, renowned B Corps such as Patagonia, Warby Parker, Etsy and Seventh Generation have had no trouble raising money from investors. Some advantages to incorporating as a B Corp include: greater management flexibility, increased press and marketing, loyalty among like-minded consumers, and of course, the ability to pursue social missions and have a positive impact on society and the environment.
While I can understand the benefits (pun intended), B Corps are championing an extremely daunting task by attempting to lead a movement to change corporate America. As investors, why should we invest in a company telling us we are not first priority? Telling us they will sacrifice profits if they see fit. Yes, the companies noted above have been able to achieve success both socially and economically, but they seem to be exceptions to the rule.
The real question is: at what level of uncertainty are investors no longer willing to invest?